Artificial intelligence may be all the rage in the business world, but to the feds, AI-enabled algorithms are being cast as the main villain behind skyrocketing housing costs in this country.
Last month, the Department of Justice joined the attorneys general of California, Colorado, Connecticut, Minnesota, North Carolina, Oregon, Tennessee and Washington to sue RealPage, blaming the software company’s property data services for rising rents nationwide.
According to the complaint, the analytic products offered by RealPage have enabled property owners to unlawfully coordinate and collude to artificially raise rents, undermining competition in the rental market to the detriment of consumers seeking apartments. The government argues that these practices are in violation of the century-old Sherman Antitrust Act.
“As Americans struggle to afford housing, RealPage is making it easier for landlords to coordinate to increase rents,” said Assistant Attorney General Jonathan Kanter, a principal player in Washington’s attempted crackdown on tech companies using antitrust laws and the Federal Trade Commission.
The case hinges on marketing materials from the company, as well as interviews with customers who use the platform to screen potential renters, generate pricing recommendations and facilitate the collection of payments. DOJ asserts that by using nonpublic data, property owners that would normally compete are acting like cartels to raise prices on renters, aided by RealPage’s software.
For the first time in weeks, one could recall that Kamala Harris is vice president of the United States, as she seemed well aware of the coming DOJ lawsuit while on the campaign trail. Running against what looks like a shady corporation is good election-year politics.
Ms. Harris unveiled portions of her housing policy proposals, which aim directly at property management software. That is no coincidence. She intended to back a Democratic Senate bill to “prohibit the use of algorithmic systems to artificially inflate the price or reduce the supply” of rental units.
San Francisco will soon also ban “price-suggesting” algorithmic software for property owners, arguing that these platforms have made living too costly for renters seeking a home. For California to pin its high cost of living on landlord software and not its mountain of rules limiting housing development feels like a “pay no attention to that man behind the curtain” moment.
Are algorithms to blame for higher rents? The evidence is scant.
According to the most recent data from the National Association of Realtors, U.S. median rent in July declined year over year for the last 12 months, trailing downward since the 9.1% inflation peak in June 2022. This is likely because of inflation cooling and the resumption of housing construction as the pandemic recedes.
Since then, rents have declined in most Southern and Western metro areas, such as Phoenix, Austin, Texas, and Nashville, Tennessee, and buoyed by the growing supply and faster construction of rental properties. Overall, the number of privately owned housing units under construction is hovering at levels not seen since the 1970s, which has helped to reduce rental costs in most parts of the country.
While it is fitting to argue that rental costs are higher for American households, it’s a world of difference to believe that algorithms are the main culprit and that breaking them up would have an impact.
Supply and demand remains as simple and effective a concept as ever. We need to build more housing units and meet demand.
A report this year by the Joint Center for Housing Studies at Harvard found that exclusionary zoning policies and slow construction have contributed significantly to the estimated 1 million new dwellings we need to reverse the housing shortage. It’s an outcome we could have easily predicted.
When the price of building and housing materials soared during the pandemic and the subsequent inflation, building became slower and more costly. When restrictive city zoning laws didn’t allow developers to build dense housing units or mixed-use properties, developers put their money elsewhere. When environmental reviews and red tape doomed residential projects, builders stopped building.
Many state and local governments have now adopted innovative policies to speed up the construction of more homes and alleviate high rental prices, slashing regulations and fast-tracking building permits. These concrete actions address the problem, and it almost always happens at the state or local level.
On the other hand, federal prosecutors and presidential candidates would like to use the courts and the law to chase after software tools and blame landlords when they know full well it won’t lower your rent or make more homes appear.
Instead of using our justice system to go after yet another tech firm, our officials would do well to reduce consumer costs by allowing what we know works to lower housing costs: Build, baby, build.
Originally published here
